*2406 DEFERRED INCOME, NOT INCLUDED IN AMOUNT OF GROSS INCOME. - The petitioner, during the periods here under review, was engaged in the business of buying, selling and storing grain and other products and merchandise, and sold corn, stored in its elevator, for which it received $11,886.10, which corn had not been purchased, and petitioner's liability to the parties storing such corn could not be determined until the succeeding taxable period. In its income and profits-tax return the petitioner eliminated from the gross sales of corn the sum of $11,886.10 and it is clear that this amount was not included in the amount of gross income used by the respondent in computing the alleged deficiencies. Held that the record herein fails to show any error made by respondent in the computation of the alleged deficiencies.
*390 This case comes before the Board as a result of an order granting a rehearing and the taking of additional evidence not contained in the former record. See *2407 .
Petitioner seeks a redetermination of alleged deficiencies in the amounts of $1,450.80 for the fiscal year ended May 31, 1920, and $53.16 for a one-month period ended June 30, 1920.
In its petition the petitioner alleges errors as follows: (1) Disallowing storage liability in the amount of $11,886.10 which covers the liability for grain stored with the elevator company at June 30, 1920, and for which no liability is set up in the balance sheet; (2) overstatement of cash on hand of $7,391.91.
The record contains no testimony in support of the second allegation of error.
FINDINGS OF FACT.
During the period from June 1, 1919, to June 1, 1920, and for some years prior thereto and since, the petitioner has been and is a *391 corporation operating a grain elevator at Magnolia, Minn., where it received and stored grains from producers and also bought and sold grain on its own account and dealt generally in other farm products and merchandise required by its farmer customers. Prior to the period here under review petitioner had established the practice of closing its books and making its income-tax returns on*2408 the basis of fiscal years ended May 31 of each year, and it made a return for the year ended May 31, 1919, in which it showed an operating loss of $5,874.91. Upon audit made by internal revenue examining agents this amount was, as a result of minor adjustments, increased to $6,316.23.
On May 31, 1920, petitioner did not take an inventory or close its books but continued its accounts until June 30, 1920, when it took an inventory of stock on hand and closed its books.
Its inventory then taken was in substance as follows:
| Oats, 307 bushels | $307.00 |
| Corn, 2,629 bushels | 4,320.30 |
| Soft coal, 80 tons | 1,024.32 |
| Hard coal, 2 1/2 tons | 25.80 |
| Flour, 220 sacks | 945.05 |
| Bran flour, 18 sacks | 6.30 |
| Feed, 51 sacks | 226.64 |
| 7,428 bushels stored corn shipped, not paid for | 11,886.10 |
| 3,692 bushels stored oats shipped, not paid for | 3,692.00 |
On March 26, 1920, petitioner issued its storage ticket No. 295 for 1,323 bushels and 2 pounds of corn. On March 29, 1920, it issued its storage ticket No. 296 for 2,138 bushels and 42 pounds of corn. On May 29, 1920, it issued its storage ticket No. 299 for 1,764 bushels and 36 pounds of corn. On June 1, 1920, it issued its storage*2409 ticket No. 298 for 1,459 bushels and 46 pounds of corn. All of the foregoing corn was sold for cash by petitioner at the same time of its receipt at the then prevailing market prices. The corn represented by storage tickets Nos. 295, 296, and 298, was purchased on September 18, 1920, from the farmers who had stored the same and settlement made therefor at the then prevailing market prices. The corn represented by storage ticket No. 299 was purchased on January 22, 1921, from the farmer storing the same, and then settled for on the basis of the market price of that date. The total of these four storage tickets is approximately 6,686 bushels. The difference between this total and the 7,428 bushels shown in the inventory as sold but not paid for is unaccounted for.
On or about the 6th day of August, 1920, the petitioner made a corporation income and profits-tax return on Form 1120, covering its business transactions for a period of 13 months beginning June 1, 1919, and ending June 30, 1920. This return was filed in the office *392 of the collector of internal revenue for the district of Minnesota on August 9, 1920. Petitioner was credited with a payment on August 26, 1920, on*2410 account of taxes shown on this return in the amount of $155.34. Schedule A of this return shows:
| Gross income | $16,743.97 | |
| Deductions: | ||
| Ordinary and necessary expenses | $1,543.48 | |
| Compensation of officers | 3,385.00 | |
| Repairs | 191.36 | |
| Interest paid | 1,965.16 | |
| Taxes paid | 230.66 | |
| Total | 7,315.66 | |
| Difference between gross income and deductions | 9,428.31 | |
| Losses | 5,874.91 | |
| Net income | 3,553.40 |
In a typewritten schedule attached to said return the gross income and deductions taken were set forth as follows:
| Profit and Loss Statement Expenses | |
| Gain | |
| Salaries | $3,289.00 |
| Insurance | 360.00 |
| Interest | 1,965.16 |
| Repairs | 191.36 |
| Gas, Oil, and Fuel | 331.60 |
| Taxes | 230.66 |
| R.R. Co. Lease and Ware House License | 70.00 |
| Postage | 25.45 |
| Drayage | 87.45 |
| Magnolia Advance | 39.00 |
| Telephone | 122.65 |
| Directors' Salaries | 96.00 |
| Miscellaneous Exp | 507.33 |
| Loss of Year 1919 | 5,874.91 |
| 13,190.57 | |
| Trading Summary | |
| Gain | |
| Oats | $6,642.93 |
| Corn | 4,030.20 |
| Barley | 584.75 |
| Flax | 1,871.28 |
| Seeds | 161.46 |
| Salt | 134.37 |
| Flour | 305.66 |
| Feed | 311.66 |
| Twine | 189.57 |
| Coal | 278.01 |
| Hogs | 2,234.08 |
| 16,743.97 |
*393 In another typewritten schedule*2411 attached to said return and designated as "Statistical and Trading Statement" there appears under a subheading designated as "corn" the following tabulated information:
| Bushels | Corn | Value | ||
| Purchase | 140,870 | 140,870 | $184,524.15 | |
| Sales | 145,129 | $ 195,634.41 | ||
| Invoice, 6-30-20 | 2,829 | 147,958 | $ 4,320.30 | 199,954.71 |
| 15,430.56 | ||||
| Stored corn ship | 7,428 | Less stored ship | 11,886.10 | |
| Profit on corn | 3,544.46 | |||
| Profit on hedge | 485.74 | |||
| 4,030.20 |
Following the receipt of reports made by examining agents of the Internal Revenue Bureau the respondent audited the petitioner's return hereinabove described; made two minor adjustments in respect of reserve for bad debts and deduction for depreciation, neither of which are here in question; disallowed the claimed deduction of the net loss of 1919 in the amount of $5,874.91; found a net taxable income for the 13-month period from June 1, 1919, to June 30, 1920, in the total amount of $9,077.31, of which he allocated twelve-thirteenths, or $8,379.06, to the fiscal year ended May 31, 1920, and $698.25 to the one month of June, 1920, and computed income and profits-tax*2412 liability for the fiscal year ended May 31, 1920, of $1,606.14, against which he credited the payment theretofore made by petitioner in the amount of $155.34, and asserted a deficiency for that period in the amount of $1,450.80, and he further asserted a deficiency for the one month of June, 1920, in the amount of $53.16.
OPINION.
TRUSSELL: The petitioner has contested its liability to the deficiencies asserted against it upon the one ground that it was being assessed a tax upon monies received during the taxable period from the sale of corn which it had not purchased and did not then own. The testimony establishes that during the months of March to June, inclusive, 1920, the petitioner sold not less than 6,686 bushels of corn and, at the market prices prevailing on the day of sale, received payment therefor and deposited the amounts received in its account with its local bank. Upon the testimony it may be taken as accepted that it sold enough more stored corn which it did not own to make up the total of 7,428 bushels claimed in its petition and as shown by its inventory sheet of June 30, 1920, and that it deposited in its accounts at the bank the sum of $11,886.10 as received*2413 from such sales and that its books and balance sheet showed no liability to the farmers *394 who actually owned such corn on June 30, 1920. On the other hand, the trading statement attached to the petitioner's return for the 13 months ended June 30, 1920, shows conclusively that the said sum of $11,886.10 was eliminated from the total of corn sales reported in said return and was then treated as an item of deferred income and that the said amount has not been added to or restored to gross income for periods under review by the respondent. There seems to be no doubt that both the petitioner and the respondent have treated funds received from the short sales of corn as deferred income and petitioner's liability to the farmers owning the corn as a deferred liability, although the latter did not appear upon petitioner's books nor on his balance sheets.
The substantial change which the respondent made in the petitioner's accounting and in its income-tax return was the elimination of the deduction for net loss sustained in the fiscal year ended May 31, 1919, and it is this elimination which has caused the deficiencies asserted by the respondent. Neither in its petition nor at*2414 the trial has petitioner undertaken to question the elimination of this net loss deduction and it is clear that the petitioner could not properly claim such deduction for the reason that the fiscal period during which it was sustained began on June 1, 1918, and ended on May 31, 1919, a period which is not included in the provisions of section 204(b) of the Revenue Act of 1918.
No issue has been raised in respect of any other possible errors in the return made by the petitioner for the 13 months ended June 30, 1920, and we, therefore, reach the conclusion that the deficiencies asserted by the respondent must be sustained.
Reviewed by the Board.
Judgment will be entered for the respondent.